The world over the weekend, woke up to witness one of the biggest fall in the international crude oil price in nearly 30 years, as the price crashed to $28 per barrel, as Saudi Arabia and Russia clash over supply limits.
But Crude Oil prices jumped by around 8% on Tuesday over the possibility of economic stimulus and Russia signalled that talks with OPEC remained possible. This saw the Brent crude futures LCOc1 going up by $2.80, around 8%, to $37.16 a barrel by 1354 GMT, after hitting a session high of $38.22 a barrel. West Texas Intermediate (WTI) crude CLc1 gained $2.42, or around 8%, to $33.55 a barrel, after hitting a high of $34.60.
According to the report by Reuters, Russian oil minister Alexander Novak who spoke on the price war, said he did not rule out joint measures with OPEC to stabilise the market, adding that the next OPEC+ meeting was planned for May-June. But in response, Saudi Arabia’s energy minister told Reuters he did not see a need to hold an OPEC+ meeting in May-June if there was no agreement on what measures should be taken to deal with the impact of the coronavirus on oil demand and prices.
“I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Prince Abdulaziz bin Salman said.
“Price wars and pandemics are nothing new to the commodity markets, but both occurring simultaneously is something we have yet to witness in our careers,” RBC analysts said in a note.
“Such action will test the market’s self-balancing mechanism absent the backstop of OPEC, a mechanism that has not been tested since the U.S. shale boom was in its infancy,” they added.
The heavy drop in Crude oil price was attributed to the move by Saudi Arabia to flood the market with crude in a bid to recapture market share, after the implosion of an alliance between OPEC and Russia, which had been restraining oil supply since the start of 2017 in an attempt to support Crude Oil prices.
The report on Monday has it that Russia had refused to go along with OPEC’s proposal to rescue the coronavirus-battered oil market by further cutting production at a meeting in Vienna on Friday last week. The standoff left the oil industry shell-shocked and sparked a 10% plunge in Crude oil prices Friday. Crude oil was already stuck in a bear market because of a sharp drop in demand linked to the coronavirus outbreak.
Saudi Arabia escalated the situation further over the weekend. The kingdom slashed its April official selling prices by $6 to $8, according to analysts, in a bid to retake market share and heap pressure on Russia.
Analysts said that Russia’s refusal to cut production amounted to a slap to US shale oil producers, many of which need higher oil prices to survive, the report added.
“Russia has been dropping hints that the real target is the US shale oil producers, because it is fed up with cutting output and just leaving them with space,” analysts at energy consulting firm FGE wrote in a note to clients Sunday. “Such an attack may be doomed to failure unless prices remain low for a long time.”
The 2014-2016 oil crash caused dozens of oil and gas companies to file for bankruptcy and hundreds of thousands of layoffs. However, the US shale industry emerged from that period stronger and the United States would eventually become the world’s leading oil producer.
“The perils of playing a game of brinksmanship with Vladimir Putin were proven in dramatic fashion,” Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a Friday note to clients. “It is hard to see how the relationship can easily be put back on a solid footing.”
The U.S. President, President Donald Trump on Monday said he will be taking “major” steps to gird the U.S. economy against the impact of the spreading coronavirus outbreak, while Japan’s government plans to spend more than $4 billion in the second package of steps to cope with the virus.